4 of the 10 Largest U.S. Real Estate Markets Are Now ‘Overvalued’

Like the stock market, the U.S. housing market seems to climb every month.

Home prices nationwide, including distressed sales, increased again in June, according to the latest monthly Home Price Index from property data company CoreLogic. Prices were up by 6.7 percent compared with one year earlier and up by 1.1 percent from the previous month.

As we’ve reported was the case in recent months past, a low inventory of homes for sale continues to contribute to high home prices. In the second quarter of this year, the unsold inventory relative to the number of U.S. households reached its lowest second-quarter level in more than 30 years.

Frank Martell, president and CEO of CoreLogic, notes:

“Home prices are marching ever higher, up almost 50 percent since the trough in March 2011. With no end to the escalation in sight, affordability is rapidly deteriorating nationally and especially in some key markets …”

CoreLogic now considers four of the 10 largest metropolitan real estate markets in the country to be “overvalued” rather than “at value” or “undervalued.” They are:

Denver-Aurora-Lakewood, in Colorado

Houston-The Woodlands-Sugar Land, in Texas

Miami-Miami Beach-Kendall, in Florida

Washington-Arlington-Alexandria, in the Washington, D.C., metropolitan area, which also includes parts of Virginia, Maryland and West Virginia

CoreLogic defines an overvalued market as one in which home prices are at least 10 percent higher than what CoreLogic considers the “long-term, sustainable level.” That level is based on local market fundamentals such as disposable income.

If you’re worried this could mean a housing market crash is imminent, know that’s not what CoreLogic’s forecast seems to indicate. The company’s latest projection is that home prices will continue rising — with a 5.2 percent increase expected between this June and June 2018.

At least for now, it seems the trouble with real estate will continue to be affordability. Martell explains:

“While low mortgage rates are keeping the market affordable from a monthly payment perspective, affordability will likely become a much bigger challenge in the years ahead until the industry resolves the housing supply challenge.”

“A lot of people are worried the market is too hot and whether it’s a good time to buy property. When you buy an investment property, your hold period should be about five years, so most people are looking at the possibility you might have to hold during a recession.”

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